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When will a court 'rescue' a contract?

Posted on 3 May 2019

When will a court 'rescue' a contract?

The UK’s highest court, the Supreme Court, has decided (Devani v Wells) that an oral agreement between an estate agent and a property vendor was enforceable, even though it did not specify the event that would trigger the obligation to pay commission to the agent.  The Court found that it did not need to imply a term to that effect - the contract was enforceable as it stood - but it would have been willing to do so had it been necessary.

While this decision suggests that, in some cases, a court may 'rescue' a contract that is missing a key term, the circumstances where it does this may be few and far between.  It is always far preferable to ensure all of the key terms are contained in a written contract.

In the case, the parties had agreed that the estate agent's commission would be two per cent, but did not specify what would trigger that commission. 

At first instance, the High Court had implied a term into the contract that Devani’s commission became payable upon completion. 

The Court of Appeal overturned that decision, concluding that there was no valid contract into which such a term could be implied: the absence of such a critical contractual term as the trigger for payment rendered the whole arrangement unenforceable.  It took the view that a court cannot “make” a contract for the parties by implying a term.

The Supreme Court disagreed on two bases.  Firstly, they held that the contract was valid as it stood and it was not necessary to imply an additional term into the contract.  The parties had agreed all the terms that the law requires as essential and it would "naturally be understood" that the payment would be due on completion. 

Perhaps of wider applicability though is the second basis.  The court held that, even had it not come to that view, it would have been willing to imply a term into the contract to that effect.  It considered that the courts can imply a term into a contract to render it sufficiently certain to constitute a binding contract.  A term will only be implied where necessary to give the contract business efficacy or where it would be so obvious that “it goes without saying” that the parties intended it to be a part of their deal.  The Supreme Court gave the example of a contract which called for some further agreement as to price: it may be appropriate to imply a term that, in default of agreement, a “reasonable” price is payable.

This decision offers some comfort to parties looking to enforce a contract which is missing a key term: the courts may, in appropriate circumstances, find that the contract is enforceable without needing to imply any additional term, or it may be willing to imply a term in order to make such a contract enforceable. 

However, the circumstances in which a court will do this may well be rare.  In this case, the context was key (an estate agent's contract) and the interpretation of the parties' words and conduct adopted by the Supreme Court was "amply" supported by authority on payment of the estate agent's commissions. 

In less standard contracts, it may be much less obvious what triggers the obligation to pay, and there remains a high chance that any such contract missing a similarly significant provision will be unenforceable.  In any event, given that few contracting parties would wish to embark on of a journey through three levels of English Courts to find the answer, it is clearly preferable to establish, in writing, all of the key terms at the outset.

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